Round II of the Massachusetts SREC-I clearinghouse auction failed to clear yesterday, July 30. A third round will be held on Friday, August 1st, 2014. As we described earlier in an explanation of the Massachusetts SREC-I auction, This annual auction, which is based on the volume demanded, allows SREC sellers the opportunity to auction their SRECs at the end of each summer for a fixed price of $300/SREC, minus an auction fee (most customers will net $285)
Implications of the Massachusetts SREC-I Clearinghouse Round II
An Auction failing to clear Round II automatically increases the Renewable Portfolio Standard (RPS) obligation by 142,504 to 1,054,933 SRECs for compliance year (CY) 2015. An increase in demand generally pushes prices higher, which is what Sol Systems’ SREC trading team saw yesterday. Massachusetts SRECs with a 2015 vintage stamp increased $35 per SREC to $320 from $285. Since a partial clearance of the Auction is allowed in Round III, compliance entities and SREC investors are likely to bank some SRECs in expectance of this increase in CY 2015 RPS obligation. All unsold auction SRECs will be returned to the owners (with extended life of three years) in proportion to the clearance volume in Round III and will have to be sold on the spot market.
How the Massachusetts Solar Market Will React
Our CY 2014 forecasts indicate a whopping oversupply of 250,000 SRECs (excluding any expected reminted SRECs from tomorrow’s auction that can push this number higher) which is around 50% to 55% of the CY 2014 RPS obligation. An oversupply of SRECs in CY 2014 is likely to put a considerable downward pressure on CY 2014.
What does this mean for SREC-II markets and new development?
Until now, Massachusetts solar energy system owners expected auctions in the SREC-I and SREC-II markets to clear. Wednesday’s failed SREC-I auction has fizzled out the aforementioned expectations and exposes SREC-II to higher price volatility.
Essentially, Wednesday’s failure eroded confidence that the auction mechanism will work going forward, which is potentially a major problem for developers who built solar projects and assumed SRECs would clear the auction. New projects will have to temper the lofty expectations or seek contracted revenue for the SRECs.
To mitigate the risk of the auction mechanism, Sol Systems can provide you with fixed forward pricing solution. Having a fixed forward price eliminates the need to enter the auction and deal with reminted SRECs. Right now, our 4-year pricing for SREC-I is $270. We offer 3-year, 4-year, 5-year and 10-year pricing for SREC-I and SREC-II. Sol Systems takes care of customer accounts throughout this process, thus allowing our customers to pursue their core business. For more information, email us today firstname.lastname@example.org.
About Sol Systems
Sol Systems is a renewable energy finance firm that provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. Founded in 2008, Sol Systems focuses on meeting the industry’s most critical solar financing needs, including tax structured investments, capital placement, debt financing, and SREC portfolio management. To date, the company has facilitated financing for thousands of distributed generation solar projects and hundreds of millions in investment on behalf of Fortune 100 corporations, utilities, banks, family offices, and individuals. For more information, please visit www.solsystemscompany.com.